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Infrastructure Investment: Legal Constraints and Issues
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Infrastructure investment:legal constraints and issues
Clifford Sims and Edward Johnson24 June 2014
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Introduction: some fundamental issues
Investment powers for public and private sector schemes
Structural legal issues and the choice of vehicle
Lessons from Henderson PFI Secondary Fund II
Overview
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Fiduciary duties and ESG factors
Pension funds as lenders/investors: counterparty risk and credit security
Limited liability?
Termination rights
Management control
Fundamental legal issues
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Public (LGPS) schemes
Investment Regulations 2009
Statement of Investment Principles
Procurement
Knowledge and understanding: Public Service Pensions Act 2013
Private sector schemes
Trust deed and rules
Statement of Investment Principles
Knowledge and understanding: Pensions Act 2004
Investment powers/framework
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Vehicle Liquidity? Transparency
Collective Investment Scheme• Unit Trust• Investment Company• Authorised Contractual Scheme• Limited Partnerships
x ?
Insured Fund x ?
Direct IMA x √
Real Estate Investment Trusts √ √
Direct Equity in InfrastructureCompanies
√ √
Structural issues: characteristics of alternativevehicles
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PPP Primary Investment Structure
PROJECT CO
Government Body
HOLDCo
PROJECTAGREEMENT
Construction,Operation & Maintenance
SUPPLY CHAIN
Infrastructure Fund Sponsor/Investor
SeniorFunder
JOINT VENTURE
SENIOR DEBTCREDIT
AGREEMENT
MEZZANINECREDIT AGREEMENT
MezzanineFunder
Pension Fund
LOAN NOTES
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PPP Secondary Investment Structure
Pension Fund
Joint Venture
SHARE SALEAGREEMENT
PROJECT 1 PROJECT 1PROJECT 1 PROJECT 1
LOAN NOTES & DIVIDEND RIGHTS
Government Body
Infrastructure Funder& Investor
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PPP – Govt. backed long-term guaranteedrevenue?
Govt. Body
Loan Note Coupon& Dividend
Pension Fund
Rent/Unitary Charge
PaysRent/Unitary Charge
Hold Co
Debt ServiceProject Co
Senior Lender
SENIOR DEBT LOCK-UP
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Aggregator model
Investor
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Nature depends on when and how you invest
Exercisable indirectly or via derivative actions
Price of exercising rights against third parties?
Structural issues: Investor rights
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Background
Limited Partnership Act 1907 inflexibilities:
“Management” is very wide
Removal of GP no help
PPM not binding
No misrepresentation claim
No negligence claim
Construction of documents key
No breach of investment restrictions or objectives
Lessons from Henderson PFI Secondary Fund II(1)
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Establish contractual rights as early as possible
side letters
Most Favoured Nation clauses
Understand/agree investment objectives and restrictions before investing
Due Diligence on proposed/actual portfolio: investment consultancy
Indemnities – from GP/Manager?
Understand underlying insolvency risk of investee entities
Is Limited Partnership still the right model?
Lessons from Henderson (2)
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Time to create new vehicle
Resources, personnel, deal flow, expenses
Investor-friendly terms, but still LP
Lessons from the Pension Infrastructure Platform
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Clifford Sims
Tel: 020 7655 1193
Email: [email protected]
Edward Johnson
Tel: 020 7655 1097
Email: [email protected]
Questions?
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This information has been prepared as a general guide and does not constituteadvice on any specific matter. We recommend you seek professional advicebefore taking action. We accept no liability for any action taken or not taken as aresult of this information.
The small print
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